Q4 2023 Alibaba Group Holding Ltd Earnings Call

Speaker 2: Good day ladies and gentlemen, thank you for standing by. Welcome to Alibaba groups, March quarter, 2023, and full fiscal year 2023 results conference call. At this time, all participants are on listen only mode. After management's prepared remarks, there will be a Q&A session.

Speaker 2: I would now like to turn the call over to Rob Lynn, Head of Investor Relations of Alibaba Group. Please go ahead.

Speaker 3: Thank you. So ia djaha, when exandia Ali Baba chie onean earling orizania Sa fancy would te chanyya. Yes, you do have for some Chairman CEO .

Speaker 3: Zhou Cai, Executive Vice Chairman, Tobi Xu, Chief Financial Officer. We have also invited Trudy Dai, the CEO of Taobao and Timor Group, and Zhang Fan, the CEO of Alibaba International Digital Commerce Group.

Speaker 3: This call is also being webcasted from the IR section of our corporate website. A replay of the call will be available later today. Now let me quickly go over to Steve Harper.

Speaker 3: Today's discussion may contain forward-looking statements involving inherent risks and uncertainties that may cause actual results to differ materially from current expectations. For detailed discussion of these risks and uncertainties, please refer to our latest annual report on Form 20-F and our documents filed with the US SEC, or announce on the website of Hong Kong Stock Exchange.

Speaker 3: And if we're looking statements that we make on this call are based on assumption as of today, and we did not undertake any obligation to update these statements, except as required on the applicable law. Please note that certain financial measures that we use on this call, such as Adjust the Ivada, Adjust the Ivada margin, adjust.

Speaker 3: adjusted EBITDA margins, non-GAAP net income, non-GAAP diluted earnings per share or ADS, and free cash flow are expressed on a non-GAAP basis. Our GAAP results and reconciliation of GAAP to non-GAAP ventures can be found in the earnings press release.

Speaker 3: Unless otherwise stated, growth rate of all stated metrics during the call refer to year-over-year growth versus the same quarter last year. With that, I will now turn to Daniel.

Speaker 4: Thank you, Rob. Hello everyone. Thank you for joining our earnings call today.

Speaker 4: We closed the March quarter and fiscal year 2023 in a changing macro environment.

Speaker 4: As COVID-19 cases waned after the Chinese New Year, business and social activities gradually recovered in China.

Speaker 4: These changes had impacted some of our businesses in various degrees.

Speaker 4: During the past quarter, our revenue reached

Speaker 4: 208.2 billion RMB represents a year-over-year growth of 2%.

Speaker 4: Our adjusted EBITDA was approximately 25.3 billion RMB, representing a year-over-year growth of 60% as a result of our continued efforts in enhancing operating efficiency and optimizing costs.

Speaker 4: Looking at the macro environment in China and globally, we see both challenges and opportunities amid uncertainties for an economic recovery.

Speaker 4: The international macro environment is highly uncertain.

Speaker 4: At the same time, we see market opportunities in China's consumption recovery post the pandemic and rapid development in artificial intelligence.

Speaker 4: We will continue to execute our three core strategies in consumption, cloud computing, and globalization in response to these opportunities.

Speaker 4: In the past few months, we have noticed a gradual recovery in China consumption.

Speaker 4: but consumer confidence and spending power still need further momentum.

Speaker 4: At the same time, competition among the multiple consumption platforms is still fierce.

Speaker 4: and everyone is trying to capture the incremental demands with more value for money, product and services.

Speaker 4: We will focus on the following areas in such a competitive market.

Speaker 4: 1. Acquisition and retention of high quality users

Speaker 4: 2. Maintaining our platform's differentiated consumer mindset.

Speaker 4: And number three, most importantly, creation of new demand through supply-side innovations.

Speaker 4: In international commerce, we will focus on building core capabilities to support the sustainable development of our international commerce business.

Speaker 4: as well as leveraging the unique advantage of China's supply chain to serve global consumers.

Speaker 4: In cloud computing, progress in industrial digitization and the emergence of AI have created a higher demand for computing power.

Speaker 4: and the foundation models have expanded AI's application in all aspects of life.

Speaker 4: Alibaba Cloud will focus on seizing these historical opportunities to maximize its market potential.

Speaker 4: In March, we announced a major organizational transformation, restructuring Alibaba Group into six business groups and other investments.

Speaker 4: As a result, we are transforming from operating multiple group businesses.

Speaker 4: into a holding company that focuses on capital management.

Speaker 4: Each business group will operate with a high degree of independence.

Speaker 4: led by its own CEO who assumes full responsibility for company performance under the supervision by its own board.

Speaker 4: Today, in our press release, we also announced the list of the board of directors and CEOs of these six business groups.

Speaker 4: which was recommended by Alibaba partnership and approved by our board of directors.

Speaker 4: We believe this transformation will empower all our business to become more agile, enhance decision-making, enable faster responses to market change and promote innovation to capture opportunities.

Speaker 4: thereby unlocking shareholder value. Starting from today, we will invite the business group CEOs to join the earnings call in turn and share their business strategies and the thinking behind.

Speaker 4: At today's call, we have Chuyi Tai and Jiang Fan, who will later discuss about the business performance and the strategies of the Tmall Commerce Group and the International Digital Commerce Group, respectively. I will also share my thoughts on Cloud Intelligence Group's business review and outlook.

Speaker 4: As an important step in our reorganization, we are in the process of establishing a new governance framework under the 1 plus 6 plus n structure.

Speaker 4: Under the new governance framework, CEO of the business group takes overall responsibility for the offering results and compliance under the leadership of the business group's board.

Speaker 4: A list of reserved matters will be specified to require approvals from Alibaba Group's board of directors.

Speaker 4: These reserve matters include annual business plan and budget, business group CEO appointments and evaluations, major capital transactions, business cooperation and data sharing mechanism within Alibaba Group.

Speaker 4: compliance oversight, etc.

Speaker 4: To ensure the implementation of risk management and compliance requirements under the new governance structure, we have obtained all approval to establish a new Compliance and Risk Committee, which will be responsible for overseeing the group's compliance and risk management requirements under the new governance structure.

Speaker 4: in areas other than financial reporting.

Speaker 4: In addition, in order to adapt to our new role as a holding company,

Speaker 4: We have also established a Capital Management Committee under Alibaba Group's Board of Directors.

Speaker 4: With the goal of enhancing the shareholder return of the group, the committee oversees major capital management matters across our business groups.

Speaker 4: With the further progress of the restructuring plan, we have formulated different capital management plans based on the various stages of development, business needs, market environment and risks that each business group is facing.

Speaker 4: We are announcing several updates today.

Speaker 4: Firstly, we plan to fully spin off Cloud Intelligence Group and complete its public listing in the next 12 months as an independent company.

Speaker 4: Cloud Intelligence business model, customer profile, and stage of development are fundamentally different from the other consumer-focused business in Alibaba ecosystem.

Speaker 4: Full independence will allow cloud intelligence to further sharpen its business strategy and optimize its operations and organization.

Speaker 4: Secondly, Freshipo and Tanya have over the years

Speaker 4: established differentiated customer value propositions.

Speaker 4: Stable and while defined in the models and clear parts to profitability.

Speaker 4: We believe these two companies are ready to go public.

Speaker 4: Our board has approved threshold plans to kick off the IPO process and the time out to explore an IPO in the next 12 to 18 months.

Speaker 4: Thirdly, Alibaba International Digital Commerce Group will explore raising external capital to support the business expansion in the global market.

Speaker 4: The successful execution of the above transactions is subject to various factors.

Speaker 4: such as market environment, regulatory approvals and so on.

Speaker 4: Next, I will hand over to Tobi to discuss the financial performance of the past quarter and the entire fiscal year, as well as our capital allocation strategy.

Speaker 5: Thank you, Daniel.

Speaker 4: As announced, our Alibaba Group's board have formed the Capital Management Committee to undertake a comprehensive capital management plan to enhance shareholder value.

Speaker 4: During the reorganization process, we will work closely with this newly formed committee to explore and execute all options that could unlock value for Alibaba Group.

Speaker 4: Under leadership of the Capital Management Committee, we are committed to improve shareholders' return and execute a robust capital allocation framework as a holding company that focuses on three priorities.

Speaker 4: First, the strength of our balance sheet and our cash position is a competitive advantage in an uncertain environment. While we maintain a prudent approach to our capital structure, we will be focused on improving returns on invested capital in managing the assets of the company.

Speaker 4: Second, we will design, review and implement EPS creative activities including constant share buybacks to reduce our outstanding share count while maintaining discipline in managing our ESOP programs.

Speaker 4: Third, we will explore all options to enhance shareholders' return by achieving more transparency in the value of our assets and the returning capital to shareholders, including subsidiary fundraising, IPOs, and spin-offs.

Speaker 4: Let me share with you in detail the actions we will take and we will be taking following today's announcement.

Speaker 4: Going forward, our main source of funds will be from Taobao and Timo Business Group, which will continue to be our core holding and 100% owned. The Taobao and Timo Business Group generates substantial annual free cash flow, which will be made available to the Alibaba Group.

Speaker 4: In fiscal year 2023, we generated the US dollar 25 billion in free cash flow that was mainly contributed by this business. And we believe it will continue to generate strong free cash flow in the future.

Speaker 4: In the future, as a result of reorganization, our additional source of funds will come from monetization of our consolidated businesses.

Speaker 4: As Daniel mentioned, our board has approved the following transactions as the initial phase of our capital management planning.

Speaker 4: First, for Alibaba International Digital Commerce Business Group, or AIDC, we are confident of its opportunities and growth prospects, and we plan to start its external financing process.

Speaker 4: The capital race will assist the business group to expand into new geographic markets, invest in new technologies, grow its consumer and supplier base.

Speaker 4: strengthen its management team and develop and enhance its products and services to its customers globally. Second, we are starting a process to explore an IPO of Tainio's small logistics group. The group provides supply chain, logistics and delivery services to customers and merchants.

Speaker 4: There are customers of Taoban Timo Business Group and AI DC as well as third-party customers. Ali Gubaba Group holds a 67% equity interest in the company. We target to complete IPO in the next 12 to 18 months.

Speaker 4: We are starting a process to execute an IPO refreshable, our new retail business, and we expect the IPO will be completed in the next 6 to 12 months.

Speaker 4: Importantly, except for Taobao Timo Business Group, these businesses and other subsidiaries are given a limited time period to assess the impact of the pandemic.

Speaker 4: Alibaba Group's capital, including equity injections and our credit facilities lending that are based on market terms.

Speaker 4: After which, each business should have their own standalone financing capability that may improve raising private equity, issuing debts, and are becoming publicly listed. We believe the successful completion of these transactions will further optimize our capital structure and strengthen our cash position.

Speaker 4: for approximately US$10.9 billion in our share repurchase program, which represented approximately 44% of our free cash flow. From April 1 to May 17, we have repurchased another US$2.3 billion in ADSS.

Speaker 4: Currently, we still have an unutilized amount of approximately USD 17.1 billion under the Shear Approaches program that we'll continue to execute.

Speaker 4: Under reorganization, each business group will have their own ESOP program that aligns the interests of their management and employees to their business performance and equity value creation. This in turn means less ESOP ink issuance at the HOCO level in the future.

Speaker 4: Additionally, as long as the business groups remain majority owned by Alibaba Group, the Capital Management Committee will review their proposed annual ESOP plans with the objective of balancing between the potential dilution to Alibaba Group's shareholders.

Speaker 4: and providing an attractive level of incentives for business groups to attract and retain talents.

Speaker 4: Lastly, as announced,

Speaker 4: Our board of directors approved a full spin-off of the cloud intelligence group via stock dividend distribution to our shareholders.

Speaker 4: Prior to the spin-off, we plan to include external strategic investors in Cloud Intelligence Group through private financing. In connection with the spin-off, Cloud Intelligence Group intends to become an independent publicly listed company. The spin-off will be subject to restructuring of certain assets.

Speaker 4: liabilities and contracts, implementation of employee equity incentive plans, market conditions as well as regulatory reviews and approvals in relevant jurisdictions.

Speaker 4: We intend to structure the spin-off in the most tax-efficient way for our shareholders.

Speaker 4: subject to the transactions, conditions and approves described above, we target to complete the spin-off in the next 12 months.

Speaker 4: We believe the successful execution of this plan will further unlock value for Alibaba's shareholders in the future.

Speaker 4: Now, let me provide a brief review of our financials during the March 2023 quarter.

Speaker 4: For the quarter ended March 31, 2023, total revenue was RMB 208.2 billion, an increase of 2% that was primarily driven by the revenue growth of international commerce segment by 29%.

to RMB 18.5 billion.

Sionel segment by 18% to RMB 13.6 billion and local consumer services segment by 17% to RMB 12.5 billion.

Adjusted EBITDA increased by RMB 9.5 billion to RMB 25.3 billion year-over-year in the quarter.

The increase was primarily due to an increase in China's commerce adjusted EBITDA, as well as narrowed adjusted EBITDA losses of local consumer services and digital media and entertainment.

Overall adjusted EBITDA margin improved by 4 percentage points year over year to 12 percent.

Now, let's look at cost trends as a percentage of revenue excluding SBC.

Costs of revenue ratio, excluding SBC, decreased 2 percentage points to 66 percent in the quarter ended March 31st.

primarily due to decrease in cost of revenue from direct sales.

Product development expenses ratio decreased 1% points during the quarter.

Sales and marketing expenses ratio decreased 1% year-over-year to 12% in March quarter, reflecting our continued efforts in optimizing user acquisition and user retention spending across businesses.

General and administrative expenses ratio remains stable at 5% in March quarters.

Our gap net income was RMB 22 billion, an increase of RMB 44.4 billion year over year, primarily due to net gains arising from increases in the market prices of our equity investments in publicly traded companies.

compared to net losses from these investments in the same quarter last year, partly offset by the decrease in share of profit of equity method investors.

the increase in impairment of investments, and the decrease in income from operations.

As of March 31, 2023, we continue to maintain a strong net cash position of RMB 399 billion, of US$58 billion. As mentioned, during fiscal year 2023, our strong net cash position is in the top 10.

was supported by healthy free cash flow generation of RMB 172 billion.

by healthy free cash flow generation of RMB 172 billion, US dollar 25 billion.

In addition, we have been disciplined in investments. For the fiscal year ended March 31, 2023, our net cash used in investment and acquisition activities was RMB 840 million compared to RMB 37 billion in the same quarter.

last year.

Now, let's look at segment results. Revenue from our China Commerce segment in March quarter was only 136 billion, a decrease of 3% year-over-year.

For the quarter ending March 31, 2023, online physical goods GNV on Taobao and Timor, excluding unpaid orders declined mid-single digit year over year.

Customer management revenue decreased by 5% year-over-year to RMB 60.3 billion. The gap between CMR and GMV on Taobao and Timo has been narrowing.

Direct sales and others revenue declined 1% to RMB70, $1.8 billion, mainly due to decrease in offline store sales.

China Commerce segment adjusted EBITDA increased by RMB 6.3 billion to RMB 38.5 billion in March quarter.

Segment EBITDA margin increased from 23% in the March 2022 quarter to 28%. This reflected significant loss reductions from Taobao deals and Taotai Tai and Fresh Careful. Partly offset by decrease in profit from customer management.

percent to RMB 14 billion. The increase was primarily driven by business growth acceleration of all our major businesses including Art Express, Lazada and etc.

International Commerce segment adjusted EBITDA loss narrowed by RMB $233 million to RMB $2.3 billion in March quarter. The loss reduction year-over-year was primarily contributed by the reduced losses from Trendy Oil.

hardly offset by the increased losses from Lazada. The increased losses from Lazada was primarily due to a one-off early termination expense in connection with the negotiation of new service contracts to reduce future operating costs.

Excluding this one-off effect, the adjusted EBITDA loss of international commerce segments will be less than RMB 1.5 billion. Our local consumer service segment revenue in March quarter grew to about 1.5 billion.

17% to RMB 12.5 billion, primarily due to positive GMV growth of ERLEMA driven by order growth and higher ERV value.

local consumer service adjusted EBITDA

Loss reduced by RMB 1.4 billion year over year to RMB 4.2 billion. Most of the loss reduction was driven by RMB business.

while other major business within the segment also recorded losses.

SELMA continues to improve its unit economics per order by increased average order value and reduced delivery cost per order. Its UE continues to improve year over year and remains a positive).

Revenue from Tainio after intersegment elimination grew 18% year-over-year to RMB 13.6 billion, primarily contributed by the increase in revenue per order from international fulfillment solution services as well as increasing demand for customer logistics.

In March quarter, 72% of China's total revenue was generated from external customers.

Tanyo recorded adjusted EBITDA loss of RMB 319 million in March quarter, loss reduced by RMB 593 million year over year.

Revenue from our cloud segment after intersegment elimination was RMB 18.6 billion in March quarter, a decline of 2%. The year-over-year decrease in revenue of our cloud segment reflected delays in delivery of hybrid cloud projects.

given COVID-19 resurgence in January and normalization of CDM demand compared to the same period last year.

Agis-Ebita of cloud segment was a profit of RMB 385 million in March quarter, increased by RMB 109 million year over year.

Revenue from our digital media and entertainment segment in March quarter was RMB$8.3 billion, an increase of 3%.

Adjusted EBITDA was a loss of RMB 1.1 billion, reduced by RMB 864 million year-over-year, primarily due to the narrowing of losses from Youku driven by disciplined investment in content and production capability.

Now let me pass to Trudy who will speak about Taobao and Tmoe Business Group.

Thank you Toby. This is Trudy and it's a great pleasure for me to have the opportunity to speak with you all today. In this new year we've all seen positive momentum in China's economy with 4.5% year-on-year growth recorded.

from February through to April we achieved year-on-year positive growth in users and GMV on the Tabo app and EBITDA has been good as well. Apart from those macro factors, an important part of that has been the payoff from our efforts around cost optimization and efficiency improvement as well as the five battles that we're fighting.

offerings and also by technological advances. So accordingly in this new fiscal year we've adjusted our strategy and mapped out new development plans which we're currently implementing. I'm confident that these initiatives will enable us to capitalize on the recovery and consumption to seize the opportunities created by market developments and technological advances.

a broader range of more diverse content on Taobao including shopping related encyclopedic knowledge, lifestyle recommendations and even interactive entertainment and this is corroborated by the hundreds of millions of long tail keyword searches made by users every day. So over the coming few years Taobao will be making large and sustained investments.

While accelerating growth in user scale and user time spent and consolidating its position as China's most widely used online marketplace, Taobao will be progressively upgraded into a one-stop consumption and lifestyle platform. Second, we will build a prosperous ecosystem by making the supply side more open and inclusive.

Restore Business Development Center works to enable users to buy fresh foods on Tylwell faster and with greater savings. And our live streaming and content teams will provide strong support to content creators. Additionally, we will be leveraging technological advancements to make operating costs lower for merchants.

Third, leveraging advances in AI and other technologies. The Taobao app will be upgraded to meet a much broader range of user needs. So going forward, we'll be more focused on investing in technology for Taobao, building on the whole group's technology and data capabilities. We will upgrade existing merchant tools and create new tools for merchants as well as new lifestyle scenarios.

range of needs. Undoubtedly that means that over the coming one to two years we'll be reducing merchants operating costs and increasing our investments and users merchants technology providing good merchandise, good content and a good experience as well as good service to our users. I trust that with our strong momentum of growth

On that basis, we clearly foresee platform ROI growth in the mid to long term and of this I'm fully confident. So over a three year horizon, I will be making resolute sustained and major investments to realize the above three strategies and achieve sustained growth in users. Thank you very much and at this point I'll hand over to Jiaofan.

business models and operates in different countries. In the B2C retail sector, we have a portfolio of digital retail platforms with a local commerce model including Trendy, Aldera, and Lazada. Additionally, we operate several cross-border B2C platforms including AliExpress and Tmall Taaba World. We also have Alibab.com which is a global B2B trade platform serving the wholesale sector.

All we expressed was maintained rapid overall growth.

Following the earthquake in Turkey in early February 2023, Trendy All and Alibaba Group actively provided relief support although our business in Turkey was affected in the short term it quickly recovered and achieved strong growth with a number of orders increasing by over 27% year over year. In Southeast Asia, Lazada's monetization rate continues to improve achieving a good balance between business scale growth and operational efficiency improvement. After a challenging year, the

And the local commerce business will continue to invest in the Southeast Asian market while actively seeking opportunities in other new regional markets.

In the B2B wholesale sector, we've made many upgrades to our existing models expanding from transaction services to other value-added services such as finance, logistics and digital SaaS services. We believe this will enable our wholesale business to maintain healthy growth in the coming several years. We

We will also actively expand our B2B business model into other markets. Next I will hand over to Daniel to present to you on the cloud business. Thank you very much.

and also actively expand our B2B business model into other markets. Next, I will hand over to Daniel to present to you on the cloud business. Thank you very much....update about our cloud computing business.

In the past quarter, our cloud revenue decreased by 2% year-over-year. This is partially due to our proactive move to adjust our revenue structure and focus on high quality growth. And also a result of external changes in our economy.

in market environment as customer composition. The external factors include the impact from a top customer facing out using our cloud service and switching to self-built infrastructure for its international business. Whose revenue contribution to the value of a cloud decrease

41% year over year. In addition, the resurgence of pandemic in China in January also impacted public cloud consumption and the delayed delivery of certain hybrid cloud projects during the quarter.

As the pandemic is off and remote working and the school activities decreased in February and March, demands for services such as CDN also decrease quite significantly. If we zoom out from the short-term fluctuations in cloud revenues and look back,

an Audi Cloud development over the past 14 years, and a cloud's vast future with the rapid development of AI.

We see massive market potential and remain confident at cloud future. We go to where we are today because RdCloud sees the two historical opportunities. Number one, rapid development of China's mobile internet and number two digital transformation of traditional industries. With its industry leading technology and the products.

Audi Cloud established its market leadership in China and globally by supporting the growth of many digital native enterprises and the digitalization of many industry customers.

Today, the age of AI brings two new historical opportunities to Ali Cloud.

AI brings two new historic opportunities to AliCloud. Firstly,

The emergence and the broader application of artificial intelligence, large models, and various vertical models have raised the new requirements for computing power. This is a huge first move advantage for Ali Cloud. As we have established sizable paths and paths to provide a stable

secure high performance and cost efficient computing services. We hope that the Audi Cloud services can not only support our self-developed foundation model, but also support the training and services of other large models and vertical models in the market.

Today, we are the leading provider of large-scale high-performance computing services based on public cloud. Leveraging this technology's advantage, we are working with enterprise customers and entrepreneurs to support their demand for model training and services. The second opportunity lies in building model

based on our foundation model. In April , we released a large language pre-trained model, Tong Yi Chiang Wen. Currently, more than 200,000 customers have applied for trial access.

and we have started to work with several industry partners to develop vertical models based on Tony Chen Wen.

We also plan to launch cloud products and enterprise solutions based on Pony model. At the same time, the emergence of large models also brings new opportunities to integrate AI with the various business.

within our developer group. Starting from think talk, we believe that all of our customer facing, our consumer facing business can be re-invited with a large model to offer a new AI based service experiences for our users. Chen Woon, a large language model.

is just a one member in the family of our TONG E series for preaching models. We plan to release some of the other large models in the TONG E series in the near future. As a cloud computing product company, RICloud is committed to investing in core technology development in cloud computing.

Big Data and AI to make computing more inclusive and AI more accessible. Recently, we have introduced a series of

of new product and pricing policies. We believe these measures can further expand the customer base and the cloud consumption of our public cloud services.

and drive the usage of high performance computing power required for AI model training and related services. This will provide a healthier and more sustainable growth driver for R.E. Cloud's long-term development.

Before ending our sharing today, I would like to say a few more words. Looking back at the recent events in the past few months,

Alibaba, like the world we are in, is at the beginning of a new era of transformation.

The world is standing at the new starting point in the age of AI.

the breaking flows of, in artificial intelligence, will reshape every aspect of our society.

flows of in artificial intelligence will reshape every aspect of our society, how we work and how we live.

Creating opportunities for disruptive innovations while bringing new problems from mankind to solve together. For our developers own transformation, we expect the progress in group reorganization and capital management efforts to further unlock our developers own productivity and foster more innovation.

such as new products and services and new experiences, focused on creating value for our customers.

services and new experiences focus on creating value for our customers. Through these efforts, we have developed a new way of creating value for our customers.

We hope to bring greater and long-term returns to our employees and shareholders.

and long-term returns to our employees and shareholders. Thank you.

Thank you Daniel and hi everyone for today's call. You are welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretation for the Q&A session. Please know that the translation is for convenience purposes only.

In the case of any discrepancy, our management statement in the original language will prevail. If you are unable to hear the Chinese translation, bilingual transcripts of this call will be available on our website within the one week after the meeting. ???,?????????????????????????? ????????????

Translation is for everyone to understand. If there is any doubt, please use the original language to make the statement. If you cannot hear the translation, the bilingual recording of this conference will be provided online within a week after the conference. Operator, please connect the speaker and SI conference line now.

Please start a Q&A session when ready. Thank you. Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced.

If you wish to cancel your request, please press star two. To give more people the opportunity to ask questions, please keep yourself to know more than one question at a time. Your first question comes from Ronald Kuhn from Goldman Sachs. Please go ahead.

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spoke about the reorganization of the group following which the Taobao and Hien Mo group will no longer have their profits diverted to supporting the other spun-off subsidiaries of the group. Now I'm wondering going forward what that will look like with Tao Tai Chi.

and how about deals narrowing their losses, improving profitability, will that then be reinvested into CMR? What will be the major goal going forward? Will it be the maximization of GMV or will it be a more balanced strategy going forward? How will you maintain leadership going forward? That is the key focus on GMV.

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Thank you. Alibaba, we always believe that we should start with the end goal in mind and therefore in making any investments.

We always look at what the end objective is in planning that out. Today's environment globally is still highly uncertain at the same time, there's the rapid development of science and technology, so that needs to be factored into our long-term plan. So in the next to say three to five years on Tauba, we'll have a very clear focus on putting...

users first on building up a prosperous ecosystem and driving technology, technology driven innovation and pursuing our transformation from transaction to consumption and on to life. Of course, pursuing all of this in a very competitive environment.

but using all of this to meet broader and more diverse user demand and to optimize user experience and also to increase user time spent.

So as I said earlier, we will be investing in increasing user growth and in building a prosperous ecosystem.

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So in the context of my philosophy, I see take rate more as an indicator of a platform health and an indicator of the confidence and the recognition that merchants have in the platform, merchants including those selling goods as well as those generating content.

user activities including merchants and their confidence in the platform and will continue to grow the scale of the business driving it as I said with technological innovation and promise. Thank you. Thank you. Next question.

are activities including merchants and they're confident in the platform and we'll continue to grow the scale of the business driving it as I said with technological innovation and progress. Thank you. Next question. Thank you.

The next question comes from Gary Yu from Morgan Stanley , please go ahead.

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Thank you. My question has to do with the cloud business. I'd like to ask, first of all, how have the results been and what customer feedback have you had with your price reduction strategy? Also, in the longer term, I'm wondering if you expect that Elivaba Cloud will be able to continue to maintain its number one market share in the IAS.

space in Shreda or if we can expect to see some changes with perhaps more players entering the IAS market in Shreda and more generally

Do you think Ali Baba Cloud can continue to be the largest player in each of the IAS, PAS, SAS and AI spaces going forward? And finally, what do you think in the long term will the level of profitability of Cloud Beware will not stabilize? Thank you.

Thank you, Lixue. I stand there. I'll talk about this. The first question is the latest price strategy, especially the key to the market, and the customer's reaction. In fact, I think the whole price strategy of the main character is still a goal, which is to make it even more powerful. In fact, it still needs more...

Thank you, Alicia. This is Daniel. I'll take that question. Yes, certainly our price strategy in cloud has

So by increasing our coverage of service provision to these SMEs by making this infrastructure available to more developers and to university students, we're also developing a source of future demand as they grow. So it's not just about providing service to the large industry players, but also to those smaller stars.

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So that they cope with the financial. The second thing I would add in relation to our price policy is that Alibaba is clearly the leader and the trailblazer in China when it comes to public cloud. And this is a business where we can achieve strong economies of scale. So as the leader in the market.

For the second question, today Aaron has always been in storms, or in our 2015 office in general. Actually, in a position very close to China, especially to this ocurrisome region we originally met together in many UK cities, including the different broadcasting ambient field in Italy.

But we are still insisting to force this system to cause public health, um, to force public health, um, to force this central dynamic that has very voluminous functions to facilitate growth. Our space suffer very high.

When we, in the ??? and the buff computing experience , we achieve a lot of tasks. If you do that, you can get the immediately

but it's not the same. On your second question, certainly Alibaba Cloud is in the leading position in China with respect to high-ass and high-ass plus pass. And we have seen various reports presenting different numbers. And there are indeed some different players entering the market. But Alibaba Cloud.

and SaaS, and again leveraging the economy of scale that we have achieved to pass on those dividends to benefit our customers.

In recent developmental development of AI, such asCP called, we've been experiencing massive economic struggles in the internal development of AI's ecosystem Umami level needed for?? development of AI. We Are a member of AI planning which quadrant of AI?

Finally, when it comes to AI, and this is something I've spoken about before, the development of AI technology presents a huge new opportunity for the cloud business. Because artificial intelligence applications belong...

result in an exponential increase in demand for computing power and this kind of computing power needs to be provided as a kind of public service or infrastructure So this is a huge opportunity for us going forward

Of course, with the development of AI models, including foundational models, but also of course, using Beyondal SEO.

Internet Who are we going to ask for questions in the future. We expect that with our latest release of our inspiration and senior shot at the Cloud Square still has a gap in bags. Like if we were to recall the old news. We hope it improves energy and cure and give us the aiming of our soul. We hope that we can truly regain our Soulback. We hope that with our latest release of our inspiration and senior shot of our inspiration and senior shot at the Cloud Square still has a gap in bags.

profitability as compared against other leading cloud ventures internationally but I see that gap really as our opportunity as we continue to grow in scale and achieve more economies of scale and in particular as we develop our core technologies we see a definite opportunity.

and are confident in our ability to increase the level of profitability. Thank you. Thank you. Thank you. The next question. Thank you. The next question is from Alex Yael from JP Morgan. Please go ahead.

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Thank you very much for your attention.

Thank you. So the, by way of intro to my question, I noticed when you spoke about the spin off of the cloud business in the release earlier, the wording was, it'll be a full spin off by way of dividend distribution. I'm just wondering what that means in progress. Does it mean that all of the equity that the group owns in the cloud business will be?

decisions as to which assets will continue to retain a majority control over with over 50% of the equity which assets You'll hold on to say 30 to 50% of the equity and which other assets you might reduce your holding to 10% or even to to zero So what are the factors that will inform that decision process?

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Thank you Alex, this is Toby, I'll take the first part of that question. So yeah, essentially your understanding is correct, we're talking about a full spin-off. As was mentioned in Daniel's script and also in my script, we've established at the board level a new body, the Capital Management Committee, whose primary purpose is to provide a solution

in terms of its characteristics versus those of the consumer facing businesses. So that's the reason why the decision was made to do a full spin-off. And I'll hand over to Daniel for the other part of your question.

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there being very different business characteristics around the cloud business versus Alibaba's other consumer facing businesses. But another part of that consideration is to take this opportunity to make adjustments to the shareholder structure to bring on board strategic investors who can help grow the business in the market. That was also an important consideration.

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given and will give full consideration to how to guarantee and maximize the interests of the existing shareholders in terms of how to proceed with that spin-off including giving consideration to tax issues.

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And then Alex on the second part of your question as to which of the assets or which of the businesses will continue to be a majority controlling shareholder which will be reducing our shareholding and perhaps ultimately disposing of those businesses. I think the clearest answer to your question is that it comes down to our three core strategies.

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Now, when it comes to engaging in financing and capital markets, there are different approaches that could be taken. Some companies we can retain a majority controlling interest in others we can reduce our shareholding. You know, I think the decision really comes down to what is best for that particular business in terms of its ability to grow and succeed.

So I think what you have to look at in the respect of each business is whether it has a very clearly defined target market, whether it has clearly defined customers, whether it has a robust business model. And.

and does it have core competence, the strong enough. And in the case of a business that has those four things and cloud certainly does, I think it can succeed independently in the market. So going forward, we would be happy to see and indeed would expect to see Alibaba Cloud as an independent company growing to be as big as and perhaps even bigger than the Alibaba Group is today.

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I think that the major difference going forward, following the restructuring we announced in March is that we'll be going from being a very diversified group to having individual companies that are each more focused on their own business, a strong focus on their own strategy and on developing their own core competences. This will be good for their company.

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So the question I was hoping to ask earlier I think has been partially asked already. So by way of follow-up cloud will be completely spun off, fully spun off by way of a dividend distribution. Could you tell us further about how that will work in terms of cloud then pursuing an IPO and will that result in?

Buybacks will be more favorable than dividends from the tax perspective. And then there was a third question about Freschipo that the interpreter did not hear very clearly.

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and certainly in respect of the spinoff of the cloud business looking at ways to accomplish that transaction in a way that will maximize the benefit to the shareholders and ensure a very good shareholder return. But I don't know that at this point I can share with you the specific details of how all of this will take place.

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there will be different opinions, different voices out there in the market. What I can tell you is we have this capital management committee that will, I'm sure, give full consideration to all of these different factors and make a solid decision at the end of the day as to what makes the most sense and is in the best interest of shareholders and stakeholders to ensure a good return to our shareholders.

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Your third question had to do with FreshHippo and the IPO plan for FreshHippo. I can't really share with you much more than what we announced earlier today that we aim to complete that process within 6 to 12 months.

We're working out the details of these capital raising plans right now, but at this point in time we're not in a position to share any further details. We're working out the details of these capital raising plans right now, but at this point in time we're not in a position to share any further details.

We hope to see you again soon.

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my friends who have just recently beencountry friends at the World Bank as a partner. go through these capital raising processes as the group holding company exits certain of these businesses. It will be recovering investments and gaining liquidity, but we need to ensure that we work through these processes in a way that makes the best sense.

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positive growth trend in GMV. Also we understand that this year there's been very fierce competition in the e-commerce space but at the same time in the China commerce segment profitability is improving. Can you talk to us about that and do you expect to see further improvement in profitability this year?

investments or you'll be looking more to balance growth with profitability.

I hope that the webinar will be useful for you. I hope to see you in the next session. Thank you. Thank you. Thank you. This is Trudy regarding your question on Tabo and Timo.

moderate or slow recovery, but in quarter one that's been unfolding. And secondly, I think it's the long-term effects of our efforts around cost optimization and efficiency enhancement that are starting to pay off.

And then thirdly, as I shared with you earlier, our core strategies for this year and going forward are putting users first, building a prosperous ecosystem and driving a technology-driven business. So these investments...

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So as I shared earlier, I am planning the business over a three-year horizon and implementing a three-year plan. In the context of that three-year plan, the most important thing this year, the priority is investing in users, merchants.

and technology and we're certain that those investments in users and merchants this year will pay off in terms of growth in scale. Thank you.

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and the international digital commerce. I think that the international digital commerce is a very important tool. Thank you. This is Jiang Fan on Alibaba International Digital Commerce. As I said in my earlier remarks, I think that the international digital commerce is a very important tool.

This business comprises a lot of different business models across a lot of different regions. So some of those components of the business are profitable and doing well profit wise. Others are still in the early investment phase. But in general terms we see great potential.

in international markets for the business both on the retail side and on the B2B or wholesale side. So in markets where we see a strong potential we will be investing to develop the business while at the same time in respect of our existing or the more established businesses, we will be looking at ways to further enhance and enhance operating efficiency. So we're looking at each market.

differently and taking a dynamic approach. Well, thank you everyone for joining today's call. If you have further questions, feel free to reach out to me and my IR team. We look forward to having you again next quarter. Thank you. Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.

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